In order to be enforceable, Michigan non compete agreements must reasonably restrict employee mobility, and must protect a legitimate business interest.
As a business, it is frustrating when you invest in an employee only to have them turn around and use the experience and training you have provided for another company’s benefit.
To prevent this, many employers use a non compete agreement in Michigan to restrict former employees from working for a competing business for some period of time.
But these types of agreements have come under fire in recent years by various organizations.
Critics claim that non competes can impede employee mobility, stifle competition, and prevent people from starting new businesses.
Nevertheless, a non compete may be very beneficial to your business. It can help you retain top talent and protect your trade secrets, among other things.
An employment attorney can help you draft a non compete agreement that complies with state laws while protecting your company’s interests.
How Are Non Compete Agreements Used in Michigan?
Non compete agreements can serve several purposes. You can draft a non compete in Michigan to restrict former employees from doing things like:
- Soliciting other employees or vendors;
- Sharing trade secrets or other confidential information about your business;
- Soliciting your customers;
- Working for a competitor; or
- Starting a competing business.
A non-compete agreement can be an important tool to protect your Michigan business.
Are Non Competes Enforceable in Michigan?
Whether a non compete agreement in Michigan is enforceable depends on a variety of factors. A non compete should balance the interests of your company with the rights of employees to work in their chosen trade and be mobile in their employment.
In determining whether a non compete is reasonable, Michigan law directs courts to examine the agreement’s “duration, geographical area, and the type of employment or line of business.” The agreement also must protect a reasonable competitive business interest of the employer.
If the agreement is deemed reasonable in some respects, but not others, the court may reject portions of the agreement that are deemed unreasonable and enforce the rest.
Duration of the Non Compete Agreement
First, the duration of a non compete agreement in Michigan may come into question. The amount of time that is reasonable may vary depending on the circumstances.
However, Michigan courts have generally found non compete agreements lasting up to a year to be reasonable and those lasting longer than three years to be unreasonable.
Geographical Area the Non Compete Covers
Non competes in Michigan also need to be limited to a particular geographical area. What area is reasonable will depend on the nature and size of your business.
If your business is large or you expect to expand to other areas in the near future, it might be reasonable to have a non compete that pertains to employment within a wide geographical area.
But if you have a small local business and your non compete precludes your employees from working in other areas of the country, a court may find the geographical area to be unreasonable.
Type of Employment or Line of Business
The non compete agreement should specify the line of business or type of employment in which the employee is restrained from working.
For example, let’s say your business does digital marketing for security companies and your marketing manager takes a job working for a company that sells wood cabinets. A non compete agreement that would prevent your marketing manager from taking that job would likely not be enforceable because it would be hard to show that your company is actually in competition with the wood cabinet company.
Reasonable Competitive Business Interests
As discussed, the purpose of a non compete agreement is to protect your business interests. Therefore, it is important that your agreement is clear about what interests it intends to protect.
Making it difficult for employees to leave your company or seek other employment is often not a legitimate business interest. This is why overly broad non compete agreements can be difficult to enforce.
However, there are a number of legitimate business interests that your non compete agreement may protect, such as:
- Trade secrets;
- The relationships you have built with your customers and clients;
- Confidential information;
- Goodwill; or
- Special training.
Basically, if your former employee has gained a competitive advantage against you at your expense, a non compete may legitimately prevent them from exploiting that advantage.
Non Compete Agreements and Michigan Law
A few states—California, North Dakota, and Oklahoma—will not enforce non compete agreements at all. And other states, such as Maine, Maryland, New Hampshire, and Rhode Island, have passed laws that make non competes unenforceable as to low-wage workers.
Michigan currently enforces non compete agreements, subject to the reasonableness requirements discussed above. However, HB 4874, currently passing through the Michigan Legislature, would add further restrictions to non compete agreements under Michigan law.
The new bill would require employers using non competes to:
- Give written notice of the non compete requirement to prospective job applicants;
- Disclose the terms of the non compete in writing before hiring an employee;
- Post the Michigan statute regarding non competes in a conspicuous location in the workplace; and
- Not use non competes for employees earning below a specified wage.
This bill has not yet passed either the House or the Senate, but it is something for employers to keep an eye on. Similar efforts are being made in Congress to restrict non competes for low-wage workers at a federal level.
Have a Non-Compete Agreement Question in Michigan? Contact Miller Law
If you would like to use a non compete agreement in your Michigan business, contact the attorneys at the Miller Law Firm today. We are proactive in helping our clients comply with federal and state laws while protecting their business interests.
With over two decades of experience, our nationally renowned firm can help you draft and enforce effective non compete agreements for your company. Give us a call or contact us online to schedule a free initial consultation and learn what we can do for your business.